40 2GM Tuesday October 20 2020 | the times
Business
China shows way to recovery but
needs rest of the world to follow
Seeing red
GDP by quarter
Annual growth rate %
Industrial production
Year-on-year %
2018 2019 2020
8
6
4
2
0
-2
-4
-6
-8
Source: Tradingeconomics.comChina's economy grew by
4.9 per cent in the third
quarter, shy of the 5.2 per
cent forecast by economistsAt 6.9 per cent, industrial
production expanded at its
fastest pace this yearRetail sales growth is
regaining momentum afterseven months of decline
Unemployment has been
falling and is now just 0.2percentage points higher
than it was before the crisis2019 2020
Oct Jan Sep
10
5
0
-5
-10
-15
Retail sales
Year-on-year %2019 2020
Oct Jan Sep
10
5
0
-5
-10
-15
-20
-25
Unemployment %
2019 2020
Oct Jan Sep
6.4
6.2
6.0
5.8
5.6
5.4
5.2
5.0
Gurpreet Narwan
Economics Correspondent
The coronavirus may have originated
in China but its economic impact is
being felt most acutely elsewhere.
From Europe to North America,
advanced nations are battling to
contain a resurgence in infection rates
and are bracing themselves for double-
digit falls in output this year. They can
only look with envy to China, where the
economy has already recovered.
There are questions over the veracity
of official data but China is likely to end
the year with an even bigger economy
than it had at the start. Economists at
the International Monetary Fund are
pencilling in annual growth of 1.9 per
cent, which puts the country miles
ahead of its rivals. The US, Germany
and the UK are expected to shrink by
4.3 per cent, 6 per cent and 9.8 per cent
respectively.
After relaxing their lockdowns over
the summer, western rivals are strug-
gling to protect their economies from a
second wave of the virus. However,
China deployed a severe lockdown and
a robust testing regime to contain the
virus the first time round. Although its
economy shrank at a record pace at the
beginning of the year, the subsequent
recovery has not yet come under threat.
At the same time growth has pow-
ered ahead thanks to a state-backed
boom in new infrastructure projects,
including roads and high-speed train
lines. This has fuelled the strong re-
bound in industrial production, which
beat economists’ forecasts to grow by
6.9 per cent in the year to September.
This was up from 5.6 per cent in August.
Exports, which make up 17 per cent of
GDP, have also sustained the economy
with four consecutive quarters of
growth. The country’s exporters have
been taking market share from other
parts of the world, where production is
still hampered by restrictions. This has
helped to fuel export growth, even as
the global economy has started to
soften once again. Last month exports
hit their highest level this year, climb-
ing by 9.9 per cent, thanks to a big jump
in demand from US consumers.
Yet there are risks on the horizon for
China. Infrastructure-related produc-
tion is starting to soften,which could
pose a problem as Beijing has given no
clear indication that it plans to unleash
more stimulus. With the global eco-
nomy battling a second wave of cases,
the country’s exporters could soon start
to come under pressure. There is
already evidence of this in Chinese
trade in Europe, where China’s exports
are struggling to sustain any momen-
tum from already subdued levels.
Chinese consumers kept a low profile
during the first phase of the recovery.
Domestic demand remained weak as
lingering fears about the virus kept
people away from shops and restau-
rants, particularly in less affluent parts
of the country. Inventories surged as
demand failed to keep up with the state-
backed industrial boom.
This is starting to change. Retail sales
jumped from 0.5 per cent to 3.3 per cent
in September, marking the secondmonth of growth after seven consecu-
tive months of decline. Services pro-
duction climbed from 4 per cent to
5.4 per cent during the quarter.
The benefits are being felt in the jobs
market, where Chinese workers have
been returning to work in greater num-
bers. At 5.4 per cent, the unemployment
rate is only 0.2 percentage points higher
than it was at the end of last year.
Migrant workers are flooding back into
the cities and income growth is
rebounding.
Julian Evans-Pritchard, senior China
economist at Capital Economics, said:
“We think growth will continue to pick
up in the near term. Fiscal policy is set
to remain supportive until at least thestart of next year, which should keep
activity in industry and construction
strong.” He added: “The recovery in
consumption and services activity
probably has further to run.”
Although consumption is recover-
ing, it remains the primary drag on the
economy. Tourism spending during the
first half of the Golden Week holiday
this month was down 31 per cent from a
year earlier. “The disappointing tour-
ism numbers during the recent Golden
Week break in the first week of October
suggest that household spending is still
far from a full recovery,” Miguel
Chanco, senior Asia economist at
Pantheon Macroeconomics, said.
Leading article, page 31Competition
watchdog has
tech giants
in its sights
The competition watchdog warned
that it will launch investigations into
Facebook and Google within a year
unless the government creates a new
regulator to police powerful tech
companies.
Andrea Coscelli, chief executive of
the Competition and Markets
Authority, said that he would take the
Silicon Valley giants to task if ministers
did not introduce a new regulatory
framework for the technology sector.
A month ago the CMA published a
highly critical report into Facebook and
Google after a year-long investigation.
The regulator found that Google and
Facebook enjoyed an “unassailable”
position in the digital advertising
market, which had stifled competition.
The CMA called on the government
to create a new digital watchdog to
foster greater innovation in the sector.
Among its recommendations were that
Google should share “click and query”
data with rivals and that it should not be
allowed to install its search engine as a
default on smartphones and other
devices.
However, the CMA stopped short of
ordering a full investigation into the so-
called duopoly, leading to criticism
from some publishers and internet
advertising companies.
In an interview yesterday, Mr
Coscelli said that he would launch anti-
trust investigations if Covid-19 or
Brexit prevented the government from
writing new laws to curb the power of
the tech giants.
The market investigations would run
concurrently with European Union
action against Facebook and Google,
he said. “We found problems with
Facebook on social media, Google on
search and Google on ad tech, so there
are three possible market investigation
references,” Mr Coscelli told the
Financial Times.
The regulator has previously stated
its preference for the government to
build a new framework for regulating
large technology platforms.
In a speech this month Mr Coscelli
said that the regulator may need new
powers to block takeovers by large
technology companies. At present, the
CMA must consider whether the deal
would lessen competition “on the
balance of probabilities”.Simon Duke Technology Business Editor
Cash hoarded at home like lavatory roll
One in ten Britons are hoarding more
cash at home than before the pandemic
in case of an emergency, according to
the Bank of England.
Households have stockpiled cash
since March much like they stockpiled
lavatory roll, the Bank’s chief cashier
Sarah John told MPs on the public
accounts committee.
More than four billion banknotes
were in circulation before the crisis and
the volume has increased since, with
the majority hidden at home.
“What we saw when lockdown came
in was people stockpiling cash — liter-
ally relying on cash as a contingency. So
people were withdrawing large sums of
money, often over the counter rather
than at ATMs,” Ms John said.
“They wanted to stock up on toilet
roll and they wanted to stock up on cash
at the same time. That is something we
often see in periods of uncertainty. Our
surveys indicate between 8 and 13 per
cent of people are holding more cash at
home as a result of the pandemic.”
Cash withdrawals have fallen in all
areas of the UK since the pandemic hit
because people are increasingly paying
with card, but the volume of notes in
circulation has risen because the
amount of cash being deposited has
fallen even faster.
In London, cash withdrawals fell by
90 per cent in lockdown but in more de-
prived areas, such as parts of Liverpool,
it fell by only 40 per cent, Ms John said.
She added that there had been an rise in
“person-to person [cash] transactions”
since the crisis, particularly among the
young looking after elderly relatives.
“Transactions made in the shops may
be on a card but when they are deliv-
ered the carer is being paid in cash andthe carer is not doing anything with
that cash, so that is increasing the level
of hoarding in the economy,” Ms John
said. “Cash hoarding by young people
has increased since the pandemic and
we think it is to do with this behaviour.”
Sole traders, such as gardeners and
window cleaners, also tend to be paid in
cash but they are not depositing it, “so
we are getting this increase in store of
value cash holdings”, she added.
Cash has increasingly been used as a
store of value since the mid-1990s
because of low inflation, which acts like
a tax on cash, according to Ben Broad-
bent, the Bank’s deputy governor.
In normal times, “our estimate of the
proportion of notes used in the transac-
tional cycle is 20-24 per cent”, Ms John
said, suggesting that 76-80 per cent of
notes in circulation are either held as a
store of value, have been lost or are used
in the shadow economy.Philip Aldrick Economics Editor
Tourism dip slows down
pace of economic revival
The pace of Britain’s economic recov-
ery slowed in September with the
tourism and leisure sector experiencing
a decline in output.
While the UK’s pandemic rebound
continued to outstrip the rest of
Europe, the country’s lead over its
international counterparts halved, ac-
cording to a UK recovery tracker pro-
duced by Lloyds Bank and IHS Markit.
Britain posted a PMI reading of 56.5
in September, down from 59.1 in
August, while global output growth
stood at 52.1 in September, down from
52.4 in August.
Of the 14 UK sectors monitored,
output in 11 rose faster than the global
benchmark in September, two fewerthan in August as healthcare (51.3) and
tourism and recreation (43.7) fell
behind along with transport (43.7).
A reading above 50 on the tracker
signals output is rising, while one below
50 indicates output is contracting.
While output in tourism and recrea-
tion declined, industry continued to
outperform the services sector thanks
to manufacturers’ ability to stay open.
Jeavon Lolay, head of economics and
market insight at Lloyds, said the data
showed that the impetus gained from
reopening the economy had started to
fade. “Future growth will hinge on the
path of the pandemic,” he said.
The UK’s overall output was strong
compared with European rivals. France
(48.5), Spain (44.3) and Ireland (46.9)
posted contracting output.Tom Ball